Crypto Custody Race Continues Amid Regulatory Uncertainty

Developments surrounding custody services in the digital asset market are continuing on Wall Street, even amid regulatory uncertainty.

For example, Nasdaq last week announced the halting of its plans to launch its own crypto asset custodian, citing a lack of business opportunities and an uncertain regulatory backdrop, Bloomberg reported Monday (July 24).

In addition, Citigroup is reviewing its partnership with Swiss digital asset custodial software provider Metaco, which had been acquired by another crypto firm, while State Street ended a deal with Copper Technologies, the report said.

In contrast, the French market regulator gave its blessing to Societe Generale’s custodianship services for storing and safeguarding digital assets, per the report. Meanwhile, United Kingdom asset manager Schroders is still searching for a crypto custodian.

These activities follow the high-profile collapse of FTX and other crypto platforms last year, according to the report. What ensued was increased investor demand for third-party custody.

“Getting custody right has always been the most important thing for digital asset investors from Day One, but risk tolerance has changed after last year’s multiple failures,” Anatoly Crachilov, CEO of Nickel Digital Asset Management, a London-based crypto fund, told Bloomberg. “Unfortunately, it took FTX for many investors to realize that the segregation of core functions, such as custody and matching engines, would offer critical protection to investors and help grow the space.”

As regulators in the United States crack down on major crypto companies like Binance and Coinbase, confusion surrounding certain rules has hindered the U.S. market, according to the report.

In light of these challenges, some banks have taken to spinning out a fully or majority-owned subsidiary that is not subject to the same capital requirements as their bank owners, making it easier for them to enter the space, the report said.

Standard Custody & Trust Co.’s Board Member and The Department of XYZ’s Managing Member Matthew Homer said in the report: “What you are seeing is folks quietly continuing to build behind the scene and engaging in R&D activities. The challenge for these companies is really the timing — many of them probably believe crypto is here to stay.”

Putting custody of the digital holdings of consumers and institutions on exchanges — which are lightly regulated entities at best — has proven to be a stumbling block to a mainstream embrace of crypto.